HCC Lenders Initiate Rs 2,100-Crore Debt Carve-Out
At the construction site of a railway bridge in India. (Photographer: Prashanth Vishwanathan/Bloomberg) 

HCC Lenders Initiate Rs 2,100-Crore Debt Carve-Out

The lenders of Hindustan Construction Company Ltd. initiated a carve-out of about Rs 2,100 crore of debt to a third-party-controlled special purpose vehicle along with certain arbitration awards and claims to address its asset-liability mismatch, the infrastructure company said.

The move, it said, will “significantly deleverage” the company and address its asset-liability mismatch.

The carve-out will be a slump sale subject to the lenders’ final approval, the company said in a filing today. Lenders target completing the transaction before March 31. After the carve-out, the company may not have to service debt for the next 33 months.

Debt and receivables would move to the SPV that would be controlled by a new investor, the filing said. The tenure of debt at the SPV would be up to 10 years and repayments from the proceeds of the awards would yield an internal rate of interest higher than current yields offered by the construction company, it said.

HCC, according to recent exchange filings, has a total of 56 arbitration awards with an outstanding amount of Rs 6,419 crore.

The company began defaulting on loans in April last year and has been plagued by non-payment of arbitration awards. The company then said in a statement it would also seek requisite corporate approval for the transaction.

Monetisation Scheme

The company’s board on March 26, 2019, approved the monetisation of certain awards and claims through an SPV controlled by investors led by BlackRock. Shareholders’ approval was taken to transfer awards and claims amounting to Rs 2,082 crore for a cash consideration of Rs 1,750 crore, according to an exchange filing.

There might be a write-back subject to statutory audits of the provisions taken in the last quarter of FY19 on the signing of the terms of monetization, HCC had said in a statement at the time.

Supreme Court Arbitration Win

The company had filed a petition in the Supreme Court challenging the constitutional validity of an amendment to India’s arbitration laws, which put an automatic stay on arbitration payments during any legal proceedings. In November last year, the apex court ruled in favour of the company allowing it to receive proceeds worth Rs 1,584 crore, HCC said in its exchange filings.

Current Default Picture

HCC’s default on loans from financial institutions and banks and its total financial indebtedness as on December 31, 2019, stand at Rs 286.2 crore and Rs 10,391 crore, respectively, according to its filings.

The company’s shares have declined by 23 percent over the past 12 months, while the Nifty 500 Index gained 9.4 percent.

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